According to the latest reports the expected funding from the
IMF under Poverty Reduction and Growth Facility programme (PRGF) may not be
available by the end of this year and this may put Pakistan in a precarious
position as the present rescheduling of loan will expire by Dec. 2000 and
Pakistan needs nearly 4.5 billion dollars to meet its debt servicing liability
during the year.

About 1 billion dollar will be needed in the first quarter of
2001 and Pakistan can avoid default only either by arranging another
rescheduling or persuading IMF to expedite release of funds under 3 billion
dollar 3-year package under PRGF which the first installment of 500 million
dollar is due in September 2000 and the second in March 2001. But the way IMF is
using its delaying tactics leads to apprehensions that they are upto some other
mischief and want Pakistan to agree to some other conditions cornering it into a
difficult situation.

Instead of sending their normal team to Pakistan in July for
the post budget review of the economic situation for preparation of their report
for the consideration of the Funds Board in Sept. 2000, they have sent a 2
member technical team in the second week of August to look at the revenue and
expenditure of the state and connected details. The high powered mission is
expected next month for finalising its study to recommend assistance under PRGF.
The mission may finalise its report by Oct/Nov. which may be considered by IMF
Board in December 2000.

While the IMF officials are concerned with the details of the
financial package they ultimately draw up, the extent to which Pakistan can
honour its varied commitments under that, and the manner in which Pakistan can
benefit economically from that, the nominees of the Group of 7 on the IMF Board
have to get their political clearance from their governments. Unlike our earlier
expectation of the package coming up by next month that may not be available
before December and that too only if it goes through the political clearance of
the Group of Seven prior to that.

A report emanating from Washington is significant in this
regard which says that countries identified internationally as supporters of
terrorism and those with corrupt and undemocratic regimes are not likely to get
IMF assistance. According to the press report, at a recent question-answer
session held at the National Press Club in Washington DC, IMF managing director,
Horst Kohler, explained the Fund's policy in this regard. He, however qualified
this policy by stating that the IMF on its own cannot square the circle,
according to the transcript of the Q/A session put on the IMF website.

The questioner had asked if the IMF should make loans to
countries identified as supporters of terrorism, Mr. Kohler in his reply said.
Certainly not, but the IMF is not — how should I say the Lord who knows
everything. And the Fund cannot square the circle. We have an assessment. We go
to the countries with all of the best experts we have in order to assess the
situation. We are often in a situation, not knowing exactly all the details of
the situation". He said the Fund should be even more careful, particularly
in the field of corruption of undemocratic regimes, not to work with them,
"but this is then, also an issue of our shareholders to come more clearly
out how they see this country and the cooperation with this country".

IMF officials here say that it is the Paris Club donors who
have to give the political approval for resumption of the aid suspended since
May last year. The political conditions for resumption of the aid, desperately
needed by Pakistan are several. Some of them are very tough conditionalities,
apart from signing CTBT, like handing over Osama bin Laden to the US. The others
are banning some of the militant organizations within Pakistan, like Harkatual
Mujahideen, and closing some of the alleged terrorist bases. Better relations
with India and less assistance to Mujahideen groups in Kashmir can also be
helpful.

Out of 7 countries Japan is more friendly and sympathetic to
us. It is also important to us as it is the largest single donor with an annual
package of about 500 million dollars. Japan Prime Minister Yashiro Mori is to
visit Pakistan from Aug 20 as a part of his South Asian tour to discuss
bilateral relations between Japan and Pakistan. But it has been repeatedly made
clear by Japan's Embassy in Islamabad that Japan cannot resume its aid programme
suspended since 1998 nuclear explosion unless Pakistan signs CTBT and shows
strong commitment to nuclear non-proliferation. Japan's Ambassador in Pakistan,
while addressing a meeting of Chambers of Commerce and Industry in Karachi last
month, offered to release all the accumulated amount of suspended aid once CTBT
is signed by Pakistan.

Meanwhile the State Bank of Pakistan has prepared an
alternate plan to meet the situation if IMF withholds the expected package or
delays, that unduly, says its governor Dr. Ishrat Hussain. "If we cannot
have a deal with the IMF, we have prepared an alternative to cope with the
situation," he says without disclosing the details. The speculation in the
country since then is on what kind of an alternative package it will. Pakistan
is estimated to need six billion dollars next year primarily to meet its debt
commitments after the current rescheduling of debt repayments comes to an end by
December 31. Meanwhile the sinking foreign exchange reserves has gone down below
1.2 billion dollars, while Ms. Benazir Bhutto in a statement issued from abroad
asserts the reserve is only 700 million dollars. And yet the State Bank is
forced to use some its meagre dollar reserves to prevent the rupee sinking too
low in the inter-bank market.

Drawing up an alternative package is not easy. What matters
is not only the size of that package but also its duration. Even if we get the
package of 3 billion dollars spread over three years it will not solve many of
our problems but only a few. But getting a certificate of good economic health
or getting on to the road to good health with IMF guidance is very important for
our external financial dealings.

One of the measures which Pakistan can use that has been
publicly mentioned from time to time is seeking a second rescheduling of loan
repayments from January 1, 2001. That is to be for 5 billion dollars spread over
three years. Compared to that the current rescheduling was for about 18 months
and 3.016 billion dollars.